U.S. Homeowners have $153K “tappable” Home Equity on average

Home equity is at an all-time high

Thanks to rapidly rising home values, many Americans are now equity rich.

In fact, a recent report from data firm Black Knight found that the average U.S. homeowner has $153,000 in “tappable” home equity — an all-time high.

That pent-up wealth can be put to work making home renovations, paying off debts, buying new properties, investing, and more.

But how do you actually take equity out of your home? And when is it a good idea to do so?

What does it mean to have equity in your home?

Having equity means you have cash value built up in your home. Your equity will grow year by year as you pay off your mortgage and as your home (likely) increases in value.

Of course, equity isn’t liquid cash. The wealth built up via home equity is tied into your property’s value.

That means you can’t just spend your home equity. To put the money to work, you first have to convert home equity into liquid cash. This is typically done via a cash-out refinance loan or a second mortgage.

But first, here’s how you can determine whether you have equity available to cash out.

How to calculate your home equity

Calculating home equity is simple. Just take the current value of your home minus your mortgage balance today.

FIND OUT THE CURRENT VALUE OF YOUR HOME

What is ‘tappable’ home equity?

Tappable home equity is the amount of money you can actually withdraw from your home’s value via a cash-out refinance or second mortgage. Your tappable home equity is typically equal to your total amount of equity minus 20% of your home’s value.

The reason your tappable equity is lower than your total home equity is that mortgage lenders want you to leave 20% of your home’s value untouched. That way, if you were to default on the loan, the lender would be protected financially.

There are exceptions to this rule, mostly for VA loans which may allow up to 100% loan-to-value (LTV). And a few lenders let you retain less than 20 percent.

But for the most part, borrowers should expect to need significantly more than 20% equity to be able to cash out.

Remember that Black Knight estimates homeowners currently have $153,000 in tappable equity on average — even after accounting for that 20% buffer.